RPT-UPDATE 7-Office Depot in $1.2 billion deal to buy rival OfficeMax

* Deal was accidentally announced earlier in the day

* CEO, headquarters still to be determined

Feb 20 (Reuters) - Office Depot Inc will acquire smaller rival OfficeMax Inc in a $1.2 billion all-stock deal, the companies said on Wednesday, confirming an agreement inadvertently announced earlier in the day, before it was completed.

The combined entity's name, headquarters and CEO are all undetermined, an unusual level of unresolved detail that points to the integration challenge the companies face. Office Depot shares plunged 18 percent, dragging down the value of the deal.

A source familiar with the situation said the deal was not yet completed when the news first broke around 7:30 a.m. EST (1230 GMT) on Office Depot's website in an earnings release that contained certain merger details. Confirmation only came about two hours later.

In a presentation to analysts, Office Depot Chief Executive Officer Neil Austrian said the company's webcast provider inadvertently issued the press release "way ahead" of schedule. Thomson Reuters acknowledged that one of its units was responsible for the premature release.

"We regret this error and are taking all steps necessary to enhance our processes and controls to ensure this does not happen again, as serving our valued customers remains our highest priority," Thomson Reuters said in a statement.

Thomson Reuters is selling its investor relations and services businesses, the unit that was responsible for issuing the Office Depot release, to Nasdaq OMX Group Inc for $390 million. The deal is expected to close during the first half of this year. 1/8ID: nL1E8NC2L0 3/8

The error was reminiscent of Google's accidental earnings release last year, when a premature regulatory filing included a copy of the still-incomplete statement with the phrase "Pending Larry Quote" where Chief Executive Larry Page's comment was supposed to go.

OFFICEMAX TRADES ABOVE BID

Office Depot insisted the deal was a merger of equals and not an acquisition, although its shareholders would get the larger part of the combined company. Austrian and OfficeMax CEO Ravi Saligram are both candidates for the top job.

The agreement calls for the exchange of 2.69 Office Depot common shares for each OfficeMax share. At Tuesday's closing prices, the transaction would be valued at $1.17 billion, based on 86.7 million shares outstanding as of Oct. 26.

Office Depot executives said their shareholders would own 51 percent of the combined entity, and OfficeMax shareholders would own 44 percent. Office Depot preferred shareholder BC Partners would own 5 percent, assuming it follows through on a potential plan to convert some of its preferred stock to common shares.

If BC Partners' stake were fully redeemed, Office Depot shareholders would own 54 percent and OfficeMax 46 percent. Office Depot and OfficeMax will have equal representation on the combined entity's board, however.

Office Depot shares were down 20.51 percent $3.99 in afternoon trading, while OfficeMax was down 10 percent at $11.71. OfficeMax was trading 97.7 cents above the bid.

It was not immediately clear whether the offer was enough to satisfy one of OfficeMax's largest shareholders, Neuberger Berman, which said earlier this week that it would support a deal depending on the terms.

One of the firm's key demands was that OfficeMax pay out a special dividend to shareholders. Under the terms announced Wednesday, OfficeMax would be able to pay cash dividends of up to $1.50 per share before the deal closed.

J.P. Morgan was financial adviser to OfficeMax, and Skadden, Arps, Slate, Meagher & Flom LLP and Dechert LLP were legal advisers. Peter J. Solomon Co and Morgan Stanley were financial advisers to Office Depot's board. Simpson Thacher & Bartlett LLP was legal adviser to Office Depot, and Kirkland & Ellis was legal adviser to its board. Perella Weinberg Partners also acted as financial advisers to the transaction committee of Office Depot's board.

FALLING DEMAND

The two sides may have to address antitrust questions. Analysts say they expect less pushback from authorities for this deal than what Office Depot faced in the 1990s, when it tried to merge with Staples. Of seven antitrust experts polled by Reuters this week, six said they expected a challenge by regulators or that it was still too close to call.

Office supply retailers, often seen as a barometer of economic health, have suffered as demand for their products fell after the recent U.S. recession. They also face strong competition from Amazon.com Inc and Wal-Mart Stores Inc in selling everything from pens and notebooks to furniture to government, businesses and individuals.

Office Depot and OfficeMax said combining would help them compete better with online retailers and warehouse clubs, among others. They expect the deal to yield annual cost savings of $400 million to $600 million within three years after its anticipated closing by the end of 2013.

BB&T Capital Markets analyst Anthony Chukumba said the Office Depot-OfficeMax combination would help larger rival Staples, too.

"Clearly, you can't make this deal work unless you close a bunch of stores," he said. "Store rationalization is long overdue, and Staples will clearly benefit from just having fewer stores to compete with."

Staples has 39.9 percent of the U.S. office supply market, Office Depot 19.2 percent and OfficeMax holds 15.7 percent, according to Euromonitor International.

WEAK RESULTS

Both companies also reported fourth-quarter results Wednesday, figures that helped make analysts' point about the need for consolidation in the sector.

OfficeMax said sales fell 7 percent in the quarter and would decline in the first quarter as well. It also forecast slightly lower operating margins for this quarter.

Excluding special items, the company broke even in the fourth quarter, while analysts were expecting a profit of 4 cents per share, according to Thomson Reuters I/B/E/S.

Office Depot reported a 12 percent decline in sales, which missed Wall Street expectations. Earnings of 16 cents a share before special items beat the analysts' forecast by 1 cent.